Bulletin

China's Wen underlines 'confidence'

Wen, Russia's Putin urge overhaul of world financial regulatory system

By

WilliamL. Watts

DAVOS, Switzerland (MarketWatch) - China's annual growth rate will slow in 2009, but will remain "fast and steady" despite taking a hit from growing international financial and economic turmoil, Chinese Premier Wen Jiabao told the annual meeting of the World Economic Forum on Wednesday.

Delivering the keynote speech on the opening day of the yearly gathering of the world's top corporate executives, politicians, economists and others, Wen emphasized the importance of overhauling and tightening international financial regulations to restore "confidence" in the face of growing despondency over prospects for the world economy.

Wen's address was followed by a speech by Russian Prime Minister Vladimir Putin, who said the "existing financial system has failed."

Both leaders obliquely criticized Western leaders for failing to heed warning signs leading up to the crisis. See full story.

Wen said he expected China to produce gross domestic product growth of 8% in 2009, slowing from 9% in 2008 and a torrid 13% in 2007.

The remarks come in a year that saw any remaining hopes dashed that rapidly developing economies, particularly heavyweights such as China, would be able to boost domestic demand as exports faltered, helping to blunt the global impact of a massive retrenchment by overextended U.S. consumers.

The crisis has "inflicted rather a big impact" on the nation's economy, Wen said. Still, previously announced fiscal stimulus measures, a big fiscal surplus, a well-insulated financial sector and adequate funds for undertaking big steps should prevent a deeper downturn, Wen said.

Also, without directly mentioning criticism of China's exchange-rate policy last week by new U.S. Treasury Secretary Timothy Geithner, Wen called for increased cooperation between the two countries to address the financial crisis.

Since U.S. recognition of China in the 1970s, history has shown that "a peaceful and harmonious bilateral relationship between both countries will make both winners while a confrontational one will make both losers," Wen said.

In written responses to questions from the Senate Finance Committee during the confirmation process, Geithner said China was a manipulator of its yuan currency.

Increasing concern about China

Wen's speech comes amid growing worries over the outlook for the Chinese economy.

The World Economic Forum's annual global risks report released earlier this month warned that a slowdown in Chinese growth to 6% in 2009, combined with the world's other economic woes, could significantly damage an already-weakened global economy.

A year ago, pessimism was already on the march in Davos. But it was still relatively easy to find executives and other influential Davos attendees who remained confident that emerging-market economies, particularly China, would blunt the global impact of the slowdown.

Come 2009, global growth is suffering a sharp slowdown. Companies, such as Caterpillar Inc., that were still rolling up fat profits on emerging-market sales a year ago are now feeling the pinch.

Since October, the global manufacturing sector has seen a "remarkably synchronized" deterioration in key indicators, with sharp drops in economic activity in the United States and the euro zone beginning to have a "massively negative" impact on emerging markets, including industrialized exporters in Asia, note economists at Danske Bank in Copenhagen.

For some Davos participants, the whole premise behind expectations for "decoupling" was flawed.

China and India have slowed, both economies remain largely in good shape, problems in the United States and Europe are too overwhelming to allow emerging economies to save the day, said Vineet Nayar, CEO of Indian global information-technology firm HCL Technologies, in an interview on the sidelines of the annual meeting.

Muted criticism of the U.S. and others

Without mentioning the United States or other countries with large current-account surpluses, Wen said part of the international crisis stemmed from "from iinappropriate macroeconomic policies in some economies characterized by (a) low savings rate and high consumption."

He also criticized a lack of financial regulation and supervision, which he said allowed financial innovation to run away unchecked.

Wen called for increased cross-border cooperation and wider international financial regulation, as well as revival and completion of international trade talks under the Doha Round.

Such efforts are crucial to restoring faith in the global economy and overcoming the crisis, he said.

"The harsh winter will be gone and spring is around the corner," Wen said. " Let us strengthen confidence and let us work together to bring about a new round of world economic growth."

Some China watchers say fears generated by the latest GDP data are overblown.

"Given the government's desire to prevent overheating, a period of below-trend growth is inevitable," he said. "We expect China to conduct policy to prevent growth from running too far below trend, but we do not believe the economy is in crisis or that it is falling into recession."

The slowdown reflects a longstanding crisis in export profits, while a close look at the economic data suggest the domestic economy "has plenty of juice to keep GDP growing at near-trend rates even as the world economy slows," Weinberg said.

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